Asia is possibly the fastest-changing region of the world. This focus examines 10 key transformative factors that its most far-sighted corporations and their treasury teams are building on - rather than reacting to.
We live in a world of unprecedented change. While our future is uncertain, we can be sure that it will prove very different to our past. Technology has permeated every aspect of our lives to make us more efficient, yet paradoxically we appear to have less time to fulfil our insatiable ambitions. We are literally and figuratively breaking new frontiers with how far – and how fast – we can go.
As a region, Asia presents a unique landscape that is advanced, yet developing. It’s where these forces of change are most at work, as new industry disruptors emerge regularly while the old established players pursue strategies to remain relevant. With over half the world’s population – and with its wealth, technological adoption and knowledge increasing at a faster pace than anywhere else – Asia remains core to most companies’ growth ambitions. Not only does the region have three of the four most populous nations in the world, it also has three of its top four economies based on purchasing power parity.
The rise of the Asian consumer and the pace of wealth creation in Asia are well documented. In 2014, according to the annual World Wealth Report 2015, there were almost 4.7m high net worth (HNW) individuals with investible assets in excess of US$1m in Asia-Pacific: up from 3m in 2009, surpassing Europe and almost equal with North America’s 4.7m millionaires.
The depth and pace of adoption of new technology in Asia could be seen as a springboard for sustained growth and innovation opportunities for both businesses and communities. As a region, Asia has almost half the world’s total internet population at 1.6bn users accessing a range of content from multiple devices. This appetite to adopt technology, coupled with the seemingly ubiquitous internet and mobile network coverage for multiple devices, provides businesses with a far-reaching infrastructure on which to build new business channels.
Evolving business priorities
Most organisations have focused over the past few decades on top-line growth. This has led many of them to go deeper and more remote into new markets in Asia in order to drive it. Many were ill-prepared for what is unique in these markets and the real total cost of doing business there. They are now re-calibrating their ambitions, and increasingly focusing on profitable and sustainable growth.
Margins and reputation take a much higher focus than pursuit of top-line growth alone in most organisations nowadays. Growth at the risk of reputation damage, or growth that prevents them from delivering returns to shareholders as the profits are trapped in a particular jurisdiction, are considerations that today’s organisations weigh very carefully as they review their market strategies and take a more balanced approach to growth.
Recognising that defence of their assets – financial, physical, or intellectual – is a core element of their management responsibilities; executives increasingly have the foresight to forego short-term growth opportunities if that growth comes with a disproportionately high risk. The focus on growth remains high, but is now complemented with a balanced attention on sustainability.
The business environment and the financial markets supporting it continue to evolve at a pace unseen before now. Ten of the key themes shaping the Asia region and how corporations operate here are listed below, but they are by no means exhaustive or unique to Asia.
1. Changing consumer profile and consumption habits
At the heart of most change facing corporations and industries are changes in the profile of the consumers they serve and their consumption habits. Technology has elevated the power of the consumer and subsequently their expectations. In Asia we also see extremes of demographics with an ageing population in markets such as China and Japan, which recently became the first country with a declining population.
By contrast, countries such as India have a younger workforce that is more financially confident, better educated, well-travelled and more technologically adept than previous generations or even their western counterparts. The evolving needs of the Asian consumer presents unique challenges and opportunities to modern organisations that need to reinvent themselves to provide solutions for these audiences.
2. Advent of new technology and disruptors
Information and technology is credited with much of the change around us. Established organisations need to keep on top of the evolving landscape of technological advancements as well as new market entrants from non-traditional players. Often overlooked is the impact of information and technology on human behaviour and consumption.
On one front, increased risks such as cyberattacks against financial services institutions are becoming more frequent, sophisticated and more widespread. At the same time new opportunities, such as financial technology (fintech) investment in Asia, are on the rise.
There are over 20 active fintech accelerators in Asia; with Hong Kong, Singapore and Sydney vying to be the destination of choice that attracts new start-ups to drive the future in many industries. Investment in fintech in Asia is believed to have grown fourfold in 2015 alone, demonstrating the wide support it attracts in the region. All this activity accelerates development and adoption of landscape-changing technology such as distributed ledger – with Asia first to implement blockchain at the Australian Securities Exchange (ASX).
3. Big data and insight
Estimates suggest the amount of data globally will double every two years. Successful organisations not only need to understand the value of their data but be able to monetise it. For example, consumers leave their digital footprint with everything they do. By analysing this data they can filter through the noise of the data to gain useful insights which can be used to further engage, target and enhance product offerings. When combined with news and sentiment analysis a great deal can be derived and correlated. Progress made in the field of quantum computing and augmented intelligence heralds a time where corporations can prepare themselves with reliable and trusted information delivered rapidly and with embedded insight.
Many progressive companies are leveraging advances like holographic applications incorporating virtual reality to help them better visualise and bring to life trends and outliers in data sets internal and external to their organisations.
4. Rising volatility and uncertainty
Recent months have seen high levels of volatility across most asset classes, including foreign exchange, equities and commodities. As a result, many corporations are pro-actively revisiting their policies to ensure they have adequate room to manoeuvre when faced with a future market event.
Even market psychology and the correlation of emotions on assets within regions can be applied to form a new understanding on market dynamics and predictability. Corporations are preparing themselves for specific events and on how they create an institutional ability to respond better to market events, which occur with increased frequency and greater global impact.
Swiss National Bank’s (SNB) decision in early 2015 to let the Swiss franc (CHF) appreciate against the euro, as an example, had far reaching affect around the world. Since 2009 many interest rates have been at record lows; underlined recently with the Bank of Japan’s (BoJ) unprecedented shift to negative interest rates. Access to inexpensive financing has enabled corporate balance sheets to be very liquid and once the cost of funds rises it will present unique challenges for corporations to fund long-term investments and infrastructure projects.
Many institutions are looking to raise long-term financing to avoid the spiralling cost of funding. They are also leveraging technology to build greater resilience and agility into their operations. As an example, traditionally, when conducting FX corporations would interact with a pool of banks individually either over phone or through proprietary bilateral portal. Today, however, this is being done on multi-bank platforms that bring together a number of buy-side and sell-side firms for accurate, efficient and liquid price discovery and execution.
5. Internationalisation of China
As China’s economic and structural development progresses, its role on the global stage continues to rise. Even with a slowing domestic growth rate, it is still growing at a faster pace than any other major economy. China is also making strong progress on changes that need to be made to develop its domestic market and international integration. The launch of the Shanghai-Hong Kong Stock Connect pilot programme in November 2014 was a significant step for China’s capital market reforms; laying the foundation for further liberalisation and integration.
Meanwhile, the International Monetary Fund (IMF) has signalled the importance of the renminbi’s (RMB) international status by making it the fifth currency to be included in the basket of currencies which make up the IMF’s special drawing right (SDR). Given the RMB’s increasing stature on the world stage, financial institutions are competing to raise more RMB liquidity. Competition in most offshore RMB centres remains intense to raise deposits needed for increased trading, settlement, and now investing purpose. Lastly, Chinese corporations are continuing to acquire material assets around the world to support their growth ambitions.
6. Regulatory changes
Thomson Reuters tracked over 50,000 regulatory changes across 600+ regulatory bodies and exchanges in 2015, meaning regulatory change happens once every 10 minutes. Not only is the volume of change immense, regulations are increasingly extending beyond the national boundaries. Regulatory change is a disruptor to the financial markets, transformed since the 2008 global financial crisis (GFC), with processes, platforms and the impact on conduct all radically different.
Today’s markets require transparency and connectivity from pre-trade, execution and post-trade services, which must interact with all sides of the markets including central banks and regulators. Many regulations extend to non-bank financial institutions and other corporations, presenting unique challenges to many. The focus on compliance continues to grow also due to the increasing cost of non-compliance in the form of reputation damage and fines.
Timely access to trusted sources for regulatory changes is critical for organisations to ensure compliance. There is greater adoption of regulatory tracking solutions, which alert customers to upcoming changes, helping them manage the impact and keep them compliant. Financial institutions are also integrating pricing and reference data feeds to gain the necessary data points for regulatory reporting requirements stemming from the Market in Financial Instruments Directive (MiFID II), Solvency II, Dodd-Frank and other global regulations while also balancing regional and local requirements.
7. Risk management
Risk management has become a core responsibility for most C-level executives. While numerous risks face modern day organisations, the focus on risk identification and management is yielding good results for many companies. Corporations are adopting solutions such as pricing and reference services to identify counter-party exposures for the organisation. Many are using enterprise risk management (ERM) solutions to have a holistic view to risk. At the heart of a strong risk management philosophy is an increased focus on better knowing one’s customers. Know-your-customer (KYC) solutions are gaining increased adoption in Asia across banks and corporations as they provide an efficient, cost-effective way to improve risk and compliance.
Conducting risk and improving corporate culture is expected to remain a top priority for most organisations and nations, as it ensures that employees are trained and educated incompliance best practices and regulations via eLearning solutions.
8. New silk roads
Intra-Asia trade has been among the fastest growing trade corridors for several years and is expected to account for approximately 40% of global trade by 2030. This shift of global trade corridors has given rise to new ‘silk roads’ within the region and to local development of the infrastructure and solutions. The ‘One Belt One Road’ programme is opening new corridors, while boosting investment in supporting framework infrastructure such as transport, ports, energy and social infrastructure, along national borders and main routes.
Two areas of focus for trade in Asia are risk mitigation and supply chain financing (SCF), the latter remains very popular as a means to leverage strong balance sheets of large companies to support their supply chain partners and – often – secure more favourable terms of trade. There is also rising demand for solutions to manage the counterparty risk in supply chain using Know Your Supplier (KYS) and third party risk management systems. Early alert for risk in the supply chain and potential disruptions can enhance how corporations handle risk.
9. Rise of Asian wealth
No discussion of Asia is complete without discussing growing Asian wealth, which continues at a higher rate than most other regions globally. As Asia evolves as a consumer rather than producer of products alone, the transfer of wealth domestically and across borders presents specific opportunities for most corporations. Financial institutions are investing heavily in private banking and wealth management solutions to capture a growing share of this growth opportunity.
Rising Asian wealth means many institutions are keen to understand what is unique about the wealth as opposed to other regions. Much is self-made and self-directed. The expansion of robo-advisory technology in wealth management solutions enables new and more-digitally enabled audiences in Asia. This includes younger audiences who are earning and investing or are recipients of intergenerational wealth transfer, providing access to reliable data and analytics to inform their trading and investments anytime, anywhere across devices.
10. Ethics and trust
As the region gains more economic maturity it is focusing on improved governance protocols. Anti-corruption measures are top of agenda for most Asian countries, with high -profile cases offering good examples of the effort being made to enhance transparency. We are seeing a flight to quality with people seeking news and insights that they can trust. As market volatility rises, it is common for behaviours to be influenced by rumours. Progressive companies seek solutions that are trusted and unbiased.
Progressive corporations are clearly those that are not just reacting to changes and disruptions around them, but ones that are leading them. They tend to be more nimble, have their ‘lateral’ view on and are willing to understand and embrace change by leading it.